There's been a lot of innovation in the startup fundraising world in the last couple of years--Angellist, Second Market, accelerators, etc. One thing you can't innovate around, however, is building a human relationship.
That's why I really liked two posts on the topic of investor/founder relations that I read this weekend.
"The way to seem most formidable as an inexperienced founder is to stick to the truth. How formidable you seem isn't a constant. It varies depending on what you're saying. Most people can seem confident when they're saying "one plus one is two," because they know it's true...
If you're not a master of negotiation (and perhaps even if you are) the best solution is to tackle the problem head-on, and to explain why investors have turned you down and why they're mistaken. If you know you're on the right track, then you also know why investors were wrong to reject you. Experienced investors are well aware that the best ideas are also the scariest. They all know about the VCs who rejected Google. If instead of seeming evasive and ashamed about having been turned down (and thereby implicitly agreeing with the verdict) you talk candidly about what scared investors about you, you'll seem more confident, which they like, and you'll probably also do a better job of presenting that aspect of your startup. At the very least, that worry will now be out in the open instead of being a gotcha left to be discovered by the investors you're currently talking to, who will be proud of and thus attached to their discovery. "
Paul's point is all about being upfront and honest. Just tell me, as an investor, what's going on, in plain and simple language. Tell me what you've figured out and what you haven't. Be honest about where you are in your round. Only the following things can happen:
a) I'm cool with the truth. That's the best scenario... I go into this investment eyes wide open, we work on the issues together, and if it doesn't work, I've got no one to blame but myself.
b) I'm not cool with the truth and I don't want to invest. You have one less investor who didn't see the same vision you did bothering you with distracting e-mails and discussions about strategies you don't agree with.
Whereas, if you pull one over on me and then things aren't as they seem once I'm in, I'm going to lose all faith in you as a person, let alone a founder, because you weren't honest. I won't support you in the future and won't put my full effort in as an investor. Instead, I'll likely be trying to find ways to cut my losses.
That's why it's so important for investors and entrepreneurs to spend time getting to know each other. I had someone pitch me recently who started their e-mail out with an indication of how fast the round was going. I asked if they were optimizing for bringing on people they want to work with or for speed to close--because I wouldn't be interested in a founder that was looking for the latter.
Hunter Walk's post on demo days really does a good job of summarizing how I feel about this:
"...I’m hoping we can see how each other work, maybe even work together by hopping off a whiteboard to talk through a design issue, product strategy or distribution hack you’ve been struggling to solve. I’m more interested in the way you think, communicate and lead, than your Keynote pitch skills. A termsheet should be just another milestone within a long relationship."
The goal isn't to get the best first round valuation--it's to gather all the folks you need to built a successful company over time. Strong relationships built off honesty accomplish this.